A secondary market annuity is not an annuity
A dishonest scam label using an annuity cachet to get you to buy factored structured settlements
Secondary market annuity is a wholly misleading, intellectually dishonest, scam label used by intermediaries in the tertiary market as bait, to "hook" and "reel in" investor fish to invest in structured settlement payment rights acquired pursuant to a structured settlement factoring transaction [see IRC §5891(C)(2) and §5891(C)(3)(a)].
The term secondary market annuity (SMA) is an illusion.
Also known as structured settlement derivatives (because they are derived from a structured settlement payment obligation), factored structured settlement payment streams , recycled structured settlement payments, or in-force payments. and the intellectually dishonest "secondary market income annuity" (SMIA).
Secondary Market Annuity is an engineered term used solely for marketing purposes. Nobody issues a secondary market annuity. The instrument that is labeled a secondary market annuity is not regulated for sale by any Federal or State regulatory authority. Nobody is licensed to sell them. There may not be no insurance coverage for advice given for placement of such investments.
While fruits are commonly mistaken for vegetables (e.g. avocados, eggplant, cucumber, okra), that's not the case with the intellectually dishonest and misleading label of secondary market annuity because it's intentional.
While the accurate terms structured settlement payment rights, or factored structured settlement payment streams, doesn't have the comparable Mary Poppins level of lyrical compatibility as supercalifragilisticexpaladocious, it doesn't nearly rise to the degree of tongue tying as one would have to endure with antidisestablishmentarianism, or Pneumonoultramicroscopicsilicovolcaniosis
The potential for confusion is enormous, particularly when selling to unsophisticated investors, retirees, or lawsuit plaintiffs. Some actors in the space have added to the confusion by making unauthorized use of insurance company trademarked logos to enhance the secondary market "annuity" illusion
"My bottom line: Steer clear of the product. The time-honored insight holds: A higher yield means greater risks. I don't see anything "safe" about a secondary market annuity for the average retiree". wrote Chris Farrell Economics editor Marketplace in The Skinny on Secondary Market Annuities, February 10, 2012, in response to a retiree who asked "I am retired and would like to safely increase income.
What is a secondary market annuity? Is it a suitable vehicle for putting a portion of retirement funds to safely increase guaranteed retirement income?"
Farrell is a leading expert on the growing trend toward working well into the traditional retirement years. Farrell is a journalist for PBS Next Avenue and the Star Tribune. His latest book, published in 2019, is Purpose and a Paycheck: Finding Meaning, Money, and Happiness is the Second Half of Lifel and is a graduate of Stanford and the London School of Economics.
Warning! A secondary market "annuity" is not a regulated insurance product. There are risks inherent with in the scam labelled SMAs that do not exist with regulated insurance products. There are no rules regarding solicitation of investors in the scam labelled secondary market annuities and arguably secondary market "annuities" do not receive the same protections as legitimate annuities do. Investors have been hurt, some of them retirees who cannot afford to lose.
Some actors like the cachet of annuities for obvious reasons, the implication, however untrue, that its a regulated insurance product providing stable income without disclosing transaction risk.
Western United Life Assurance Company v. Hayden, 64 F.3d 833 (3rd Cir. 1995), then-Judge (later U.S. Supreme Court Justice) Samuel Alito, on behalf of the Third Circuit Court of Appeals, repeatedly pointed to the difference between rights that a payee has to future payments under a settlement agreement and the lack of rights of a payee under an annuity purchased by the obligor to fund such payments
On November 2, 2015, late Congressman Elijah Cummings (D-Maryland), then ranking member of the House Oversight Committee, sent a letter to Thomas Burgess Hamlin CEO of Somerset Wealth Strategies significant for the including the question of whether “secondary market annuities” are regulated annuities under Maryland State law; what disclosures are made to purchasers of these “annuities;” the profits made by selling or mediating the sale of these “annuities.” Somerset sold one of these instruments to a retiree who was upposed to start receiving monthly checks in January 2018, but has never been paid one cent on his $150,000 investment. In September 2019 , according to the public disclosure record for Thomas Burgess Hamlin, . Despite exiting the marketplace, Somerset has continued to be militant about maintaining the website secondarymarketannuities(dot)com with the scam label Secondary Market Annuities, although the words factored structured settlement payments appear prominently. In September 2019, Thomas Burgess Hamlin paid $50,000 to an investor in a so-called secondary market " annuity" according to FINRA records. A colleague of his Brian Thomas Horn paid $55,000 to settle a parallel claim involving the same client in December 2019. More details my be found by visiting FINRA Broker Check. Simply enter the name of these two gentlemen (one at a time) and ask for the full report. Once it appears on your screen scroll down to disclosure events
In a March 29, 2017 decision in Greenwald v Caballero-Goehringer, Delaware Superior Court C.A. No. K14C-04-027 JJC. a Delaware Superior Court judge rejected an attempt to portray structured settlement payment rights as an annuity, stating. "The proposed "structured settlement" was described in the Third Petition as a structure to be purchased through a third party to be facilitated by a Houston, Texas law firm. The "annuity" proposed by the Petitioner was in fact a "receivable purchase agreement" which involved purchase of the rights of payment of a structured personal injury settlement from a California injured party having nothing to do with this case. In other words, the annuitant in the proposed plan facilitated by the Texas law firm was the California claimant, not the Minor. Furthermore, despite the Petitioner describing The Hartford as providing the annuity, the seller of the receivable purchase agreement was Genex Capital. No rating was provided for that entity in the petition. The Court denied the Third Petition, without prejudice":
In an October 27, 2017 decision in Portsmouth Virginia Circuit Court, Judge Johnny Morrison (who was later recused) ruled that New York Life Insurance Company could amend its petition to add investors and continue its interpleader motion. Millions of investor dollars are at stake in that single case involving at notorious cases of structured settlement transfer abuse (11 transactions approved in 2 years) that made the front page of the Washington Post on December 30, 2015. The case remains pending for more than 6 years with about two dozen motions pending, some since 2015.
An Arizona case is worth paying attention to:
Investors alleged that Genex Capital took certain structured settlement payments that plaintiffs originally bought from Genex, and then resold the payment rights to new investors, ostensibly raking in millions. Genex has claimed that its actions were within their contractual rights due to alleged actions taken by investors and sued investors in June 2021. The Genex Capital Investor Lawsuits are a living breathing lesson for anyone thinking of investing in factored structured settlement payments. They are not annuities. This case alone demonstrates that investing in other people's structured settlement payments require that an investor bear risks that would not be present if they were investing in a legitimate annuity.
Original Suit: GENEX CAPITAL CORPORATION v SEELEY CAPITAL MANAGEMENT, JOHN BULBROOK INSURANCE AGENCY, INC., NEW ENGLAND ANNUITY ASSOCIATES, LLC, SECURITY TITLE AGENCY, LLC, LOANCARE, LLC; filed April 22, 2020
AZ Maricopa County CV2020-004958
RICHARD L. KEEFER and VICKI L. KEEFER, husband and wife; HUNMI PAK, a married man; E. DWAYNE WALLS, a married man; and PANABCO, a partnership;
Plaintiffs, vs. GENEX CAPITAL CORPORATION, a Delaware corporation; GENEX STRATEGIES, INC., a Canadian corporation; ROGER PROCTOR and JANE DOE PROCTOR, husband and wife; HAPPY STATE BANK & TRUST COMPANY, d/b/a/ GOLDSTAR TRUST COMPANY, a Texas corporation; SECURITY TITLE AGENCY, INC., an Arizona corporation. Defendants.
Filed October 29, 2020 AZ Maricopa County CV2020-013796 and amended December 22, 2020
Investors alleged at Line 160 of the First Amended Complaint:
"Although Genex may have signed documents purporting to transfer, sell, and re-assign the Converted Payments to new third-party Investors, and then accepted payment from those third-party Investors, Genex did so without right, title, or interest in the Converted Payments".
The cases were subsequently consolidated under AZ Maricopa County CV2020-004958
Genex also brought in CHRISTOPHER J. SEELEY, JOHN M. BULBROOK, INCOME STREAM PARTNERS, LLC, BULBROOK0DRISLANE BROKERAGE, DRISLANE & MASTROIANNI BROKERAGE, LOANCARE, LLC and CAROLYN BULBROOK as Defendants.
This is an important case to watch, because Genex Capital has marketed and continues to market factored structured settlement payments through its retail web site "Assured Annuities"
Yet In its answer to Plaintiffs' First Amended Complaint and Counterclaims, dated June 11, 2021, Genex Capital Corporation admitted, in answering paragraph 31, that "one component of its business involves purchasing from payees future structured settlement payments due under structured settlement annuities and assigning to investors a subset of those rights..." (emphasis added) ( also multiple other references to "subsets of those rights..." see source below at 13, 53, 56, 89, 109, 126). Taken alone or in conjunction with the the NAIC Statutory issue paper No. 160 and the definition of annuity set forth by the Departments of Financial services in many states, the term " Secondary Market Annuity" is simply not credible terminology.
There also other types of income streams originated by other organizations and distributed through the secondary and tertiary markets that are insinuated and/or marketed to investors as annuities, including derivatives of payments due NBA or NFL professional athletes or their agents. In September 2021, a lawsuit was filed in Pima County Arizona after such an "annuity" sold to the trust ofa disabled 65 year old man by a settlement planner, stopped paying in April 2021, See Richard J. Hansen, a single man, and Richard J. Hansen Trust, Plaintiffs v Steffey et al. AZ. Pima County Case C20214202]
There are no shades of gray here.
If you're New York State resident " An annuity is a contract between a purchaser and an insurance company in which the purchaser agrees to make a lump sum payment or series of payments in return for regular disbursements, beginning either immediately (within 12 months) or at some future date".
Source: New York Department of Financial Services September 29, 2021
The National Association of Insurance Commissioners opined in Statutory Issue Paper 160 in December 2018, which was finalized in April 2019, that the acquisition of structured settlement payment rights is not an insurance product (i.e. life insurance or annuities).
If it's not an annuity, then it follows that calling it an annuity, driven by a profit motive, in a deliberate effort to cause someone to buy it could be considered false advertising or fraud. "A Secondary Market Annuity “SMA” is not an annuity at all" now admits Somerset Wealth despite running a website called secondarymarketannuities(dot)com.
If manufacturers of vegan food use the term chick'n on packaging for plant based chicken substitutes, why are merchants of the mislabeled investments not doing something similar?
The corollary is of course, if it is an annuity then no mention should be made of statutory protections that may apply to annuities in connection with the sale thereof (as the scam labelers like to do) because it would be unlawful.
Even Professor Adam F. Scales, the doyen of structured settlement factoring, did not refer to factored structured settlements by the intellectually dishonest label secondary market annuity.
While buying a structured settlement derivative may make sense for some people, unless you're completely informed and have a clear understanding of what you are buying (i.e. not an annuity) and how the risks differ from a real annuity, you should not proceed with the investment.
It is best to deal with a company that is registered and/or licensed to do business in your state.
Make sure you confirm the existence of active professional liability insurance that covers any advice you receive. This is critical because of the misleading use of the term "secondary market annuity". The policy may cover advice concerning annuities but advice concerning SMAs or structured settlement derivatives may not be covered. You don't want to find out if there is a claim.
A number of lawsuits have arisen over the past several years seeking to overturn transfer orders. A notable example was a cluster of deals that were originated by Chevy Chase based Access Funding (now Reliance Funding), that found their way to individual investors through various intermediaries and are at the center of lawsuits by the Maryland Attorney General, the Consumer Financial Protection Board and a victims' class action. Some payments have already been suspended pending the outcome of ongoing appellate litigation and orders may eventually be vacated.. As of December 27, 2019 payees had still not been paid., One investor brought a FINRA complaint against a former merchant of "Secondary Market Annuities " which was settled in September 2019, according to the FINRA and IAPD public disclosure databases. There is a plethora of new discovery occurring that could give rise to potentially actionable challenges in the future.
For a brief period of time from May 1, 2017, insurance placed through certain underwriters at Lloyds of London,, provided some protection against the transaction risk of overturning approved structured settlement transfer orders. Defense costs were not covered! The insurance cover first became available May 1, 2017.
For investors, the policy is first taken out by the structured settlement factoring company and then the investor is added, at an extra cost at the point of sale on a pay as you go basis.
Note that this is a separate and distinct cover from professional liability/ errors & omissions coverage. Coverage limits are a maximum of $1 million so that may not be sufficient on big deals or in the aggregate. More details here
Check out this video making light of the use of the misleading term Secondary Market Annuity
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Secondary Market Annuities on Wikipedia
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